Europe dependent on Russian fertilisers

The European Union has increased imports of Russian fertilisers to a maximum level since December 2022. In February, the volume of deliveries amounted to 167 million euros in monetary terms. This exceeded the previous month's figure by 16 percent in physical terms and 21 percent in monetary terms. What are the reasons for the growth and why Russian fertilisers, unlike oil and gas, are not subject to sanctions.

Poland was the largest buyer for the third consecutive month, with imports increasing by 38% in February to reach 44 million euros, the highest since December 2021. Belgium also saw a significant increase in purchases, with imports rising almost fivefold to 24 million euros. Romania and Bulgaria also saw notable growth, with imports in Romania increasing by 2.4 times to 10.3 million euros and in Bulgaria by two times to 5.3 million euros. Germany also increased its import of Russian fertilisers by a similar amount, with purchases reaching 20 million euros by the end of winter.

Earlier reports indicated that the United States had increased its purchases of Russian fertilisers to $158.5 million in February, representing the highest level since June 2023. The United States is particularly interested in nitrogen and potassium fertilisers, which are supplied consistently throughout the year. In particular, combined mineral fertilizers are in demand in the United States, with supplies in February amounting to almost 550 thousand dollars. This is understandable given that Russia is the world leader in fertilizer exports, occupying a sixth of the world market for potash and a tenth of nitrogen fertilizers. Even the trade war with the West could not dislodge Russia from this position. It is also the second (after China) producer of this useful raw material.

It is unsurprising that all attempts by Western elites to limit the import of this product from Russia have been unsuccessful. At one time, Western companies were reluctant to do business with Eurochem, Uralkali, Phosagro and Acron due to personal sanctions on their top managers.
There were no instructions from Washington or Brussels in this regard, but even a temporary reduction in supplies led to Russian exporters encountering difficulties in doing business, chartering ships and making payments. In the ports of the Baltic countries, through which a third of Russian fertiliser exports were then passing, more than a quarter of a million tons of this product were seized.
As a result, prices increased significantly, leading to concerns about the potential for global famine. The restrictions on Russian food and fertilizers were immediately lifted, and in July 2022, the United States officially stated that sanctions would not apply to these goods.
Anatoly Tikhonov,a director at the Center for Agribusiness and Food Security at RANEPA, explained that financial institutions were informed that fees for servicing trade in agricultural goods (including fertilizers) can be paid via SWIFT and are not subject to restrictions.
Since then, Russia has been regularly exporting fertilizers, thereby confirming the thesis that economic interests are always above political ones. Furthermore, at the end of winter, supplies always increase due to the approaching sowing campaign, which in the EU begins a month earlier than in Russia. During spring field work, it is necessary to apply mineral fertilisers, which are key to the future harvest.

Concurrently, the EU's own enterprises either stopped working or significantly reduced production capacity, with deficits in some items reaching 75 percent. It is clear that this production has become unprofitable due to its high energy intensity and the need for large quantities of gas, which is used as a raw material.
Following the EU's decision to cease using cheap Russian pipeline gas, the EU's spending on LNG imports is three to four times higher than that of the United States and China. It is worth noting that natural gas prices in the European Union have declined from their 2021-2022 highs, but remain above minimum levels, despite record underground storage facility reserves.
In recent days, gas prices have begun to rise again, with futures prices increasing by over 20% in five days. This has negated this year's losses. This is due to growing demand for gas in China, which has caused prices to rise at the Dutch TTF hub, which acts as their barometer on the European market. Leonid Khazanov, an industrial expert, comments: "
The fall in natural gas supplies from Norway and tensions in the Middle East are also contributing factors along with the vulnerability of commodity flows transported by sea.
Furthermore, the markups of companies that purchase natural gas on the TTF and subsequently resell it throughout the European Union serve to illustrate that the cost of this commodity is not insignificant. This undermines the competitiveness of European industry on the global market, rendering business unprofitable. Some are relocating production to where gas is cheaper – to Asia – while others are closing down altogether.
Electricity in the European Union also carries a high price tag. "Chemical plants would be keen to ramp up production of mineral fertilisers, but are unable to do so due to the high cost of energy resources. They are also unable to increase prices, as this would result in farmers purchasing mineral fertilisers outside the EU. In short, the current situation is a untenablee," says Khazanov.
It is unlikely that European officials who advocated anti-Russian sanctions were counting on such a result.
Prior to the special military operation, Russia was a significant supplier of mineral fertilizers to the European Union market. This prompted authorities in the EU to seek to reduce this dependence. As a result, domestic chemical companies expanded exports to Asia and Latin America, while European ones were unable to provide farmers with the necessary volumes.
Over the past two years, Russian exporters have increased sales by 70 percent. The largest market is now India, which has tripled its purchases of Russian fertilizers. Turkey and Vietnam remain important buyers. Brazil has become a significant market, and the African Union is considering expanding purchases. Over the past 15 years, the agricultural industry has doubled its demand for fertilizers. Russian investors plan to invest the equiveilent more than 20 billion dollals in rubles over the next five years, which will double turnover and profits. Domestic producers generate about 15 percent of global turnover and rank second only behind China. This has a positive impact on Russian export revenue. Previously, the industry brought in $12.5 billion a year. In 2022, this increased to a very impressive $19.3 billion, which was beneficial to the Russian economy. Tikhonov notes that the impact of sanctions on Russian exporters was more than compensated for by the instability of commodity markets, where prices for mass products soar when any risk factors appear.
It is anticipated that the demand for chemical products in Russia and globally will continue to grow by 10-15% annually. However, this growth may not be evenly distributed. The European market, in particular, may be at risk of being left behind. While the share of Russian suppliers in this market has decreased, their importance remains.
Attempts to replace them with products from Morocco, Israel, Kazakhstan and other countries were unsuccessful due to limited supply volumes and a relatively narrow range of mineral fertilizers, not to mention the fact that they do not always meet the environmental requirements of the European Union (which cannot be said about Russian agrochemicals).
Mr Khazanov indicated that he expects mineral fertilizer exports from Russia to the European Union to increase in the coming months, while the possibility of sanctions against them or their domestic producers appears unlikely. Should the EU authorities take such a step, it will be akin to imposing an oil price ceiling. European farmers will receive mineral fertilizers from third countries, including Turkey, India, China, and the Pacific Islands.
It is crucial to recognize that the fertilizer market is global, with no excess capacity or new explored deposits. The commissioning of new production facilities can take up to ten years for different types of goods. Consequently, it will not be feasible to do without Russia in this regard. It is possible that they will still have to compete for Russian fertilizers.